All posts by Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy (www.thecusponline.org) and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.

When Good Governance Isn’t “Good Enough”

MRTaccident

Four years under an honest, sincere leader like President Noynoy Aquino (PNoy), and the mood of the nation has palpably shifted, from one of hope and optimism that greeted his election in 2010, to one of fear and loathing at the prospects in 2016 when he is supposed to step down (talks of lifting his term limit notwithstanding).

Four years is a sufficiently long time to take stock of how far down the path of good governance (daang matuwid) PNoy has taken the nation. The opinion polls suggest that while an absolute majority still are satisfied with his performance, fewer and fewer people think he is succeeding or doing a good job. If this trend continues, the people who rate him poorly may become the majority.

In his last State of the Nation Address, PNoy acknowledged that the task of reforming institutions in the country will not be completed by the end of his term. By the government’s own scorecard, the administration is failing in all but one of the Worldwide Governance Indicators of the World Bank, the global benchmark for good governance, nor is it expecting to achieve its governance goals by the end of PNoy’s term in office.

When it comes to achieving inclusive growth and development, regarded by many as the holy grail of good governance, for which it is just a means (kung walang corrupt, walang mahirap), slow progress indicates the intransigence of the situation. Poverty incidence and unemployment rates remain stubbornly high, despite the uptick of our GDP growth figures for over a decade now.

In this context, where does blame lie? Were the actions taken by the administration towards implementing good governance the right ones? To answer these questions, we will need to retrace its steps. But before that, let us first lay the foundation for the analysis.

The role of any government is always two-fold: to expand the productive sectors of its economy, and to invest in human capital while providing social and environmental safety nets for those who slip between the cracks.

A government cannot raise enough revenue to perform the latter, unless it performs the former really well. Inclusive development is premised on rapid, robust, and sustained growth taking place. The benefits of growth are often distributed unevenly though, so governments often need to step in to spread them more equitably across society.

Some minimum standards of competence and probity need to exist for a government to perform these functions well. In developing and emerging economies, these tasks are made more complicated due to the limited nature of available resources, weak organizational capacity and poor institutional integrity. But as demonstrated by East Asia in the last century and now by Sub-Saharan Africa in the early part of this century, governments need not be whiter than the falling snow to perform these functions well enough.

Retracing steps

Early in his administration, the president was concerned about changing the atmospherics to promote good governance, which was what he rightly perceived as his mandate from the Filipino people. He sought to achieve this by:

–          Replacing Mrs. Arroyo’s appointees and going after his predecessor through the courts. This was achieved with a series of executive orders, impeachment complaints and charges being filed. When the PDAF and DAP controversies broke, this extended to filing cases against incumbent legislators, such as senators Juan Ponce Enrile, Jinggoy Estrada and Ramon ‘Bong’ Revilla.

–          Improving the integrity, efficiency and effectiveness of the government’s expenditure program through reforms in the Department of Public Works and Highways and Department of Budget and Management. Corollary to this was making the budget process, the bidding and awarding of contracts, more transparent and accountable.

–          Improving the collection efficiency of revenue agencies such as the Bureau of Internal Revenue, Bureau of Customs, and government owned and controlled corporations by going after tax cheats and smugglers, reforming the governance of corporate boards and initiating a performance based bonus system.

In all this, the administration has actually been quite successful in getting what it wanted. Mrs. Arroyo is under hospital arrest; the Chief Justice appointed by her was impeached and convicted; her Ombudsman resigned; and, the three senators mentioned have been suspended and are in detention. New budget and procurement procedures are now in place. Collections and dividends from revenue generating agencies and corporations are up, meaning to say their performance is improving.

So what has the administration done wrong? Why are its approval ratings going down now despite its many accomplishments in the area of good governance? I would like to go beyond just the immediate causes to offer three fundamental problems. Three things, which I believe the administration is guilty of—they are:

  1. Focusing too much on reforming the government’s budget and expenditure processes and not enough on a whole-of-economy policy agenda.
  2. Focusing too much on the process of good governance and not enough on the ultimate, end-goals or outcomes of good governance.
  3. Not being bold, or forward-looking enough in its plans and vision for the country.

Let us tackle these one-by-one.

On the first point, the administration, by focusing on the efficiency of the government’s expenditures, limited itself to influencing a mere 20% of GDP that the annual budget represents. Economic policies, which affect 100% of the economy, on the other hand, have been neglected, to say the least. Just consider the following:

–          We are facing an imminent energy shortage, despite paying some of the highest electricity rates in the region. Some parts of the country are already experiencing regular, rotating blackouts.

–          We are facing a logistics and ports crisis, with freight landing but remaining inside Manila’s container port due to regulatory bottlenecks at the national level, which have led to unlicensed trucks being apprehended by the city of Manila. This crisis in Manila is going on despite the excess capacity that exists in Batangas and Subic Bay ports.

–          Our urban roads are congested limiting the flow of people and goods around the city, impacting on our productivity and the cost of delivering basic goods and services.

–          The metropolis suffers from a lack of urban planning, co-ordination and integration with surrounding regions.

–          We are paying some of the highest rates for internet and telecommunications services, and suffering from one of the slowest internet bandwidth speeds and poor connectivity in the region.

–          The NAIA, our most important gateway to the world, is considered one of the worst airports. Even the opening of an extra runway in Sangley Point a few years from now will simply ease congestion slightly.

–          The MRT and LRT systems are hampered frequently with accidents and breakdowns.

–          Our public transport system is not safe for the riding public or motorists.

–          Pollution is choking the city, leading to health risks and higher health bills.

–          Our higher educational institutions continue to slide down global league tables and a lower proportion of their graduates succeed in passing their professional licensure exams.

–          The sleeper issue is water. Will there be enough of it with all the growth happening in our urban centers?

Now energy, ports, communications, transport, roads, clean air and water, education and skills all affect the efficiency and productive capacity of our economy. If regulatory and line agencies lack the capability to independently plan, manage, monitor and guide the players that operate in these sectors in line with national development goals, then the future growth of the economy will be significantly constricted.

‘Plan rational’ missing

If a government cannot develop what the late-Chalmers Johnson called a “plan rational” for growing productive sectors in the economy and use its economic agencies to effectively line up the players in their respective spheres of influence to attain the targets of this plan, then it won’t achieve the kind of growth that results in massive improvements in its people’s quality of life.

The administration has identified the business process outsourcing, electronics, semiconductor, logistics, tourism, manufacturing and agro-industrial sectors for growth, and yet if you look at the basic infrastructure needed to power them forward, which includes human capital and skills, the policy frameworks are not providing a conducive environment for this to be a sustainable future.

Over-processed, under-performing

On the second point, the administration has focused too much on the process of good governance, not enough on the outcome. PNoy has focused on cleaning up the bureaucracy of corruption, institutionalizing right procedures of governance, and improving transparency and accountability.

Those are noble things, worth pursuing no doubt. However, in seeking to improve the processes by which the state governs society and the economy, it should not neglect to forge effective tools with which to improve the outcomes of processes without having to clean up the system, entirely.

As the only entity in society with the right to grant licenses, franchises, monopolies and provide public goods, the government actually has some clout to shape the economic landscape if it wanted to. It can direct state resources, finances and act as guarantor to projects that it sees as strategic in nature.

During East Asia’s rapid rise to prosperity, bureaucrats would grant loans at concessionary rates and issue licenses to operate in strategic sectors of the economy to favored companies. In return, they or their political masters would often receive commissions for facilitating these transactions that would go to their political machineries. They were, in this respect, no different from our own bureaucrats.

The only distinction lies in the fact that the recipients of such cheap loans and coveted licenses were obligated to produce results in line with national development targets. If they failed to achieve these performance standards, bureaucrats would wield the stick to rein them in, i.e. loans would be retracted or they would be forced to consolidate or be threatened with the entry of new players. The economic agencies had the tools and acted cohesively to do this.

In the Philippines, we have neglected to develop such tools and organizational cohesiveness. If we had a national policy to increase the average speed of our internet service, for instance, and the current providers were not meeting this target, then our regulators should have the power and authority to slap hefty fines and penalties on them, threaten to suspend their licenses or bring in new players from abroad. The targets should be easy to measure and verify, clearly defined and pre-agreed.

The same should apply elsewhere. Of course, the constitution might stand in the way of some policy tools, such as liberalizing foreign ownership in certain sectors. The problem with full liberalization for its own sake though is that if you continue to have weak agencies without the tools to shape the behavior of players in the market, we could simply end up with foreign players behaving just as badly as local ones. Having said that, all options must be on the table.

The government through its budget process has started to initiate performance based budgeting, which is focused not just on how much gets spent or what outputs are produced, but the outcomes it achieves. This is a positive step. The next logical one would be to empower agencies with the right policy tools to achieve the desired outcomes.

Bolder vision, action-oriented focus needed

On the third and final point, if the government is not bold or forward-looking enough in its plans and vision for the country, then it follows that the agencies which develop policies and regulations for the economy will not be ambitious or strategic enough in wielding the tools for shaping its future. Without a national agenda, agencies will be more susceptible to being ‘captured’ by narrow, vested interests.

Of course the government has developed targets in the Philippine Development Plan. The question here is whether these are the right targets needed to develop a grand vision and narrative for where the country should be heading. Are they bold and forward-looking enough? Are they outcomes-based as opposed to being outputs- or even process-based?

In my view, many of the targets in the Plan remain output-oriented. What matters to the broader public is not how many passengers go through Ninoy Aquino International Airport, for instance, but how comfortable and easy it is for them to do so. There ought to be measures that monitor and track this. There could be 40 million passengers going through NAIA by 2016 as per the plan’s target, but they could all be unsatisfied and disgruntled with the service.

A more visionary target would have been to open a new airport by 2016 to service the expected inflow of passengers into Metro Manila. If the government had come into office with this as a bold target, then agencies and investors would have known what to do and where to invest their resources. The same could have occurred in power.

If the government came in and said we needed to produce X additional megawatts by 2016 and to lower the average cost by Y per cent, while reducing greenhouse gases by Z tons, and empowered responsible agencies with the mandate, resources and tools to get it done, we could have avoided the current situation. I believe dissatisfaction among many citizens stems from the impression, rightly or wrongly, that government just does not have a plan to solve their everyday problems.

When President John F. Kennedy in 1961 set a bold, long-range vision and asked for extra appropriations from the US Congress to put a man on the moon by the end of the decade, no one at that point knew how it could be achieved. There were no feasibility studies. The technology was not even available. NASA had to learn by doing, taking action that brought them closer to that vision through experimentation and adapting their plans and organization accordingly.

The many challenges facing our country are adaptive in nature. Intergenerational poverty, climate change and conflict ridden communities: the solutions to these problems are not known in advance. Even experts are confounded when they apply their current state of the art tools. But that should not deter our leaders from framing a bold and inspiring vision for the future, and to set the scene for government, clients and stakeholders to collaborate in finding a unique way forward.

Good (or “good enough”) governance?

As PNoy enters the final third of his time in office, the clock seems to be ticking much faster. People have 2016 on their minds. What he needs to do now is race to the finish line. As he contemplates the legacy that his government will leave behind, he may need to re-think his agenda thoroughly.

While pursuing anti-corruption and good governance is a laudable goal, admittedly it takes several presidential terms, decades even, before this can be fully accomplished. His government has taken many positive steps down this path, and should be commended for it, but as he himself acknowledged in his penultimate state of the nation address, the journey will not end when he steps down.

Given that good governance in its strictest sense will not be achieved during the life-time of his administration, what steps can he take now to achieve better outcomes in many policy areas that directly impact the lives of residents and ratepayers, and will affect the future growth potential of the country?

These steps, when taken, would constitute “good enough” governance, because the process for achieving outcomes may not be perfect, but at least they will allow the government to perform its primary role of expanding the economic base, and with it the capacity to address social disadvantage and environmental damage.

Once the economy has expanded sufficiently, government will be able to raise more revenue, and shall have more resources, which will allow it to continue down the road of good governance and inclusive development.

If the government fails to lift the standard of our economic infrastructure, then growth could stall, and many of the positive steps this government has taken so far might falter as well. When that happens disillusionment might set in, and many of the reforms initiated by PNoy might be wound back.

Finally, the citizenry, for its part, cannot wait decades (or even another term for that matter) before the promise of good governance is achieved, nor should they be made to wait. Four years under PNoy may have already taught them that the path of good governance is just too long and arduous. Their growing dissatisfaction with the results is a sure and telling sign that, as far as they are concerned, good governance simply isn’t good enough.

What Mar Roxas, et al can learn from Jojo Binay

He must get under their skin. A lot. By them I mean the good governance (GG) club comprised of Mar Roxas, the Liberal Party (LP) headed by Senate President Frank Drilon and Budget Secretary Butch Abad, civil society and Big Business. As to why, after four years under an honest leader like President Noynoy Aquino (PNoy), who has been pushing for institutional reforms in the bureaucracy with some modest gains, the Filipinos seem set to throw their lot with someone in 2016 who does not come from their flock?

By ‘someone’ I mean Vice President Jejomar Binay, whom they regard as an apostate to their gospel of GG. He has the highest approval rating of any public official in the land including that of PNoy. The latest nationwide poll conducted by the reputable Pulse Asia shows him way ahead of rival contenders for the presidency. Even if you grouped together the support for Grace Poe, Mar Roxas, Allan Peter Cayetano, et al, Binay would still come out on top.

And nothing seems to be able to slow him down from claiming the presidency in two years’ time. Not the revival of old corruption charges against his wife, the former mayor Dr. Elenita Binay, nor allegations of misuse of PDAF by his daughter who is in Congress, not even allegations of overspending on a public car park by his son, the current mayor of Makati, seem to break his stride. To top it all off, the three siblings of PNoy have all but come out in support of Binay’s candidacy.

Talks of a merger between the LP and Binay’s party UNA as well as possibly extending PNoy’s term are all aimed at one thing: ensuring the survival of the Liberal Party as a fighting force into the next presidential cycle. But these demonstrate just how desperate the GG crowd is at the moment with elections in 2016 on the horizon.

It’s one big conundrum that bedevils them. If PNoy has proven that the GG works, why do/es his heir/s apparent appear/s to be languishing at the bottom of the presidential derby? And corollary to that, why is Mar Roxas, his partner in arms, not able to gain the support of more people?

It is no secret that Big Business supports the candidacy of ABB (Anyone But Binay). They are represented by Bill Luz, the former executive director of the Makati Business Club, who now heads the National Competitiveness Council, which is geared to lift the country’s competitiveness in the World Bank league tables, by reducing redtape as measured in the Doing Business Survey.

It is Big Business, also going by the moniker “civil society” that have been trying to oust the Binays from their perch as rulers of the Central Business District of Makati since the people power revolution ensconced them in city hall back in 1986. It is no secret that it is this group that Secretary Mar Roxas associates with, given his own family’s commercial background as owners of the Araneta Centre in Cubao.

Ironically, the way the Binays have fought off the pressure from the business community has been through an inclusive growth and development agenda in the city, something that the GG club have yet to implement elsewhere. The Binays have made sure that the business community paid their fair dues in the form of city and real property taxes to ensure that the lower income classes benefited from the growth of the city.

The problem for the GG crowd is that the Binays, despite being considered ‘stationary bandits’, have proven to be benign autocrats of Makati, fostering an effective program of human development among the poorest in the city that has become the envy of the rest of the nation, without sacrificing the growth and competitiveness of the city.

Indeed, in Bill Luz’s most recent competitiveness rankings for cities and municipalities in the country, Makati has come out on top. Now how can a city which is supposedly run by a corrupt, dynastic, autocratic family remain on top of competitiveness surveys and produce human development indicators that are the ‘best in class’?

The answer is not good governance, but ‘good enough’ governance.

Wait. Hold-on, you might say. The economic vibrancy of Makati comes from its business community. They are the ones who make Makati great. You would only be half right in thinking that. What makes a city competitive is the regime of taxes and regulations, as well as the quality of services offered to residents and businesses. The economic vibrancy of a city can be attributed to the business sector, and for that Makati only comes in second in Luz’s study.

At the national level, we have seen the limits of GG in formulating what Chalmers Johnson called a “plan rational” for the country to govern and expand the economic spheres of activity through robust, coherent policy and regulation.

If you look at the national economic agencies of government, they are in total disarray. The country is heading for, or perhaps already is in, an energy crisis, with rotating brownouts now a reality in several parts of the country (coming to your neighborhood soon, unless PNoy invokes emergency powers, says Energy Secretary Petilla). Power rates are the highest in the region and yet regular power outages may be in the offing in Metro Manila next year. This will severely impact the country’s competitiveness.

Then there is the so-called “ports crisis” as the logistics industry is up in arms with cargo unable to leave Manila’s ports due to no integrated master plan for Manila and the surrounding regions. The LTFRB has been in conflict with the MMDA, unable to process applications for truckers on time, which has led to the prevalence of unlicensed operators. Provincial buses are another cause of paralysis.

We turn to rail policy and here, it was not too long ago the manager in charge of maintaining the Metro Rail Transit came under fire for favoring bidders with close relations to his family. Frequent breakdowns and accidents have resulted causing the riding public to suffer delays and lower productivity due to inefficient public transport.

The PPPs that came into effect this year were improperly co-ordinated causing great aggravation to the motoring public as roads and elevated skyway projects have simultaneous commenced, almost in a mad rush to leave a physical legacy after PNoy steps down from office.

The airports have notoriously been a source of shame for the country being labelled the worst in the world. With the NAIA-3 becoming fully operational, some of the congestion will be eased, but only slightly. To cope up with increased demand, another runway at Sangley Point needs to be rushed. It took a decade to get NAIA-3 finally running, how long will it take for Sangley to come on stream?

Shifting to telecommunications and internet policy, we have one of the slowest, if not the slowest internet speeds in the region. Congestion experienced by networks has been the subject of much investigation in the senate as complaints of bad service permeate. It seems that the regulatory body in charge has failed to set the proper framework to ensure that services offered by private providers was adequate to meet the needs of an increasingly technology-connected population. The high cost and poor quality of service again affects our global competitiveness.

Transportation, information technology, communications, and energy policies all play a significant part in expanding the economic activity of a nation and are a major input to the cost of basic goods. Without robust regulatory agencies staffed with people who have not worked for the big players or are in cahoots with them, supported by a good attraction and retention policy, the result is what we see.

Secretary Mar Roxas was in charge of the Department of Transport and Communication for a good period of time. The policy frameworks in the areas of air, port, rail, logistics, information and communication were within the scope of his portfolio. The current secretary was apparently hand-picked by him. The GG agenda seems to have stalled if not utterly failed to set the right framework for future growth. Electricity, transport and communications policies are all in shambles.

Yet, PNoy’s presidency has almost solely been devoted to improving the expenditure side of government through reforms in the Department of Budget and Management. For an administration to be so focused on the efficiency of government expenditure means it concerns itself with only one fifth of our economy (which is what the national budget represents). The economic regulations, however, affect the whole economy because of their impact on both the public and private sectors.

The reason why PNoy was so focused on reforming the budget process? He wanted to prove that his GG mantra works. And yet, all that happened was a slowdown of expenditure in the first two years of his presidency, leading to a halving of economic growth. His budget department tried to fix this with the Disbursement Acceleration Program, which has now gone down in flames.

The LP through Sec Abad is now pushing for bottom-up or participatory budgeting through local government units with Mar Roxas, now secretary for the interior and local government in charge of handing out grants to them. Can the GG club redeem itself, following the DAP debacle in the lead up to the elections?

The problem with this scheme is that expenditure is only one side of local government success. You need a proper taxation regime in place. When Jejomar Binay spoke before the influential Centre for Strategic and International Studies in Washington, D. C., he narrated the challenge he faced when he first became mayor of Makati. The city’s finances were in disarray, experiencing chronic deficits. He needed to fix it through proper revenue measures to improve the quality and availability of services.

PNoy entered Malacanang Palace with a “no new taxes” pledge, which has resulted in no new revenue measures being passed except for the sin tax law, which Frank Drilon championed in the senate. Unfortunately, this pledge has limited his ability to fulfill his social contract with the Filipino people.

Meanwhile his acolytes in the senate keep proposing measures to erode the tax base by increasing exemptions, or reducing tax rates. They also want to increase the salaries and benefits of government employees, en masse, thereby putting upward pressure on spending. These senators, who have not had a day of executive experience in their political lives, would not know how to balance a budget if they were to succeed PNoy in 2016. And yet each of them would vie for the mantle of GG.

The social contract came with the age of enlightenment in Europe. The covenant entered into by the state and industry was one whereby taxes would be imposed on businesses; and in return, the state would provide basic public education and sanitation to provide a healthy, literate workforce for the factories being built during the Industrial Revolution. Here we are in the 21st Century and the proponents of our social contract do not understand the essential bargain required to educate masses with the skills needed for the Information/Digital Age.

The GG club’s approach to higher education is to shut down erring schools. PNoy said he charged CHED Chair Licuanan with closing the nursing schools who were producing graduates that did not pass the nursing board exams. She then proceeded to form “commandos” to do just that. Three years later, and according to the government’s own statistical report card, the proportion of board passers has actually declined, not risen. What happened here? Did they really go after erring schools, or just the ones that posed a threat to the big universities?

Meanwhile there is still not an adequate level of financing for higher education in place that would make tertiary education an entitlement, and lift the quality of the sector. Our universities continue to slide down the global league tables.

In each of these policy spheres, the responsible agencies have been susceptible, if not downright captured by large industry players whom they were meant to regulate. Policies are not being developed by independent agencies. As a result, the needs of clients and the nation at large have not been looked after. There is no long-term view to policy. In addition, the technical and leadership capacities of people running these agencies is severely hampered by a lack of proper resourcing.

For the economy to expand rapidly, it requires rational players in economic agencies who come from the best and brightest. These individuals need to be selected on the basis of merit. They need to have the resources to be able to fulfill their mandate. Our competitiveness and future economic vibrancy depend on that happening.

Coming back to Jojo Binay. If you look at the performance of his own housing portfolio through the government’s own statistical scorecard, his agencies look like they are hitting their targets. This is again another feather in his cap—unlike the GG scorecard, which shows PNoy’s government failing in all but one indicator of the World Governance Indicators, the one for political stability, which has come about through his popularity and taking care of the military and police through the budget.

As we come to the final third of PNoy’s presidency, it does not look like the GG goals are going to be met, nor do we find a rational set of policies being laid down to govern the economy’s expansion. For investments and jobs to be created, we need to have a high performing economic bureaucracy taking charge of all these policy areas. Unfortunately, so far we have not built that capacity and the results speak for themselves.

What Mar Roxas, et al from the GG club can learn from Jojo Binay is the following:

  1. Governance is in the doing, not the talking.
  2. Governance is about developing rational, long range policy, independent of vested interests, i.e. the major players in industry.
  3. Governance needs to be felt on the ground for it to be sustainable.

The Binays represent a formula of benign, “good enough” governance that has worked at the local level for over two decades. For Mar and the rest to offer a viable alternative to him, they will need to provide us with concrete evidence that their formula for GG has done what Binay and Makati has been able to achieve. Sans that documentary proof, they might as well throw in the towel.

Our experience with PNoy has exposed the limits of GG. The thesis that kung walap corrupt, walang mahirap. Binay on the other hand has proven the success of “good enough” governance. It has proven to be more appropriate given our stage in development to be content with setting the framework for business to thrive and expand, while ensuring that they pay their fair share to make this growth inclusive.

It doesn’t matter that he has acted like a “stationary bandit” preying on the rich to give to the poor, while ensuring that the rich still get to keep their wealth and build their empires. It doesn’t matter that the Binays have amassed wealth in the process and have turned into a formidable political dynasty. This has allowed them to take a long-term view of development and govern the city without being beholden to the big end of town.

If the GG club want leaders who are honest, yet able to win elections without becoming beholden to vested interests, they need to initiate campaign finance reform and provide state funding for political parties. The only other option is what the Binays are doing in Makati.

Economic agencies are a rich source of campaign finance through the licenses, franchises and policies they craft that can easily be made to favor the big players. The reason they are weak in a developing and emerging country context is precisely to allow political bosses to use them as a source of campaign donations. You see the system is not dysfunctional. It is purposefully built to serve their needs. The only way to fix corruption and incompetence in these agencies is to finance political parties so that they do not have to depend on them as a source of funding. Then invest in their capacity and upkeep.

If we don’t fix this, then we should not complain that our choices come election time are so limited.

Good (or Good Enough?) Governance

Chastised, toned down, hurt, and exhausted:

These are all words used to describe the mood and sentiments expressed by President Aquino (PNoy) during his fifth State of the Nation Address to Congress. Reeling from the effects of impeachment complaints filed against him on the back of the Supreme Court ruling declaring certain aspects of his controversial Disbursement Acceleration Program (DAP) as unconstitutional, the president nearly broke down as he recounted the sacrifices his parents made to restore democracy.

Suggestions that he was acting like a dictator in usurping Congress’s power over the purse and in initially defying the Supreme Court must have cut him deep. The only intention he had in pursuing the DAP was to hasten the progress of his reforms aimed at addressing the needs of the country, PNoy opined.

Despite this momentary setback, PNoy indicated his willingness to keep fighting for the nation and also suggested that even without him these reforms would continue through the people’s (whom he referred to as his boss’) initiative. This in effect was an acknowledgement that the work of repairing the nation’s institutions and implementing good governance would not be completed by the time he steps down in 2016.

He admonished the nation to look for someone who would continue the effort. He continued to affirm that the path he has chosen (Daang Matuwid) was the right path, and that despite the support of the people to move his agenda forward, there continued to be forces at work to undermine him.

At a forum hosted by the ABS-CBN News Channel (ANC) in cooperation with the National Economic Development Agency, the man at the center of the DAP controversy, Sec Butch Abad cited the glowing words issued by the World Bank president in his recent visit on the progress made by PNoy’s government in pursuing an anti-corruption and good governance agenda.

And yet, by the governments own scorecard (which by the way is based on the World Governance Indicators produced by the World Bank), the government is failing in all but one measure of good governance.

An alternative SONA

As one analyst from the IBON Foundation pointed out, four years is a sufficiently long-time to assess whether PNoy’s time in office so far has been spent well. Based on the evidence, it seems poverty continues to remain high. Despite the lowering of the poverty incidence by some percentage points, it was pointed out that the poverty line was simply based on 54 pesos a day or about US$1.25. Perhaps the more accurate thing to say about that is that the severity of poverty has been eased, but poverty overall still remains high (at about a quarter of the population of 100 million).

Another crucial statistic is that the unemployment and underemployment rates remain the highest in the region. This is what accounts for the high poverty incidence. As pointed out by Sec Almendras and NEDA Director General Balisacan at the PHDevt Forum on ANC, this is mostly due to the low productivity of the agrarian sector of the economy, which is due to poor infrastructure, and low human capital investments, which the administration has been trying fix.

Despite forging a social contract with the Filipino people at the 2010 elections, the ruling Liberal Party spent the first two years of the Aquino presidency going after its predecessor, Gloria Arroyo and her appointees in key positions of government, including Ombudsman Gutierrez and the Chief Justice Corona. Though it was successful in jailing Mrs Arroyo, getting Gutierrez to step down and removing Corona from office, this came at a cost.

The slow rate of its expenditures on infrastructure put a drag on GDP growth, and other items in the social contract were derailed by PNoy’s earlier commitment not to raise taxes and to re-examine every item in the budget to exorcise any vestige of corruption allegedly left behind by the previous administration.

When the economy slowed down the next two years were spent trying to recover through the DAP. The economy did rebound, but then the PDAF and DAP controversies blew up in their face. In its last two years, PNoy’s government will seek to pursue its social contract for accelerating inclusive development while working within the bounds set by the constitution. DAP was an aberration that could have been avoided if it had simply prioritized the social contract to begin with.

Evading the traps

The challenge of any government is always two-fold: to expand the spheres of productive activity in the economy, while increasing the social safety nets of those who slip between the cracks. What separates the “convergence club” of nations that are catching up with the rich nations with the “divergence club” that are falling behind, is the integrity and continuity of economic governance. This is “good enough” governance as opposed to good governance as espoused by the World Bank.

When using good governance as the benchmark, both converging and diverging economies fare poorly. There is no significant difference between the average governance scores of converging countries from their poorer counterparts. What is different is their ability to pursue economic reforms, which expand investments and produce jobs.

In a developing country where wealth is concentrated within a few powerful groups, this task is not easy, especially as the ability of government to generate resources to maintain its autonomy from such vested interests towards crafting independent, coherent, and strategic economic policy is very limited.

When the tax to GDP ratio of a country is 10-20% (ours is hovering between 17-19%), the revenues just aren’t sufficient to enforce contracts, property rights and maintain transparent, accountable government (i.e. good governance). An estimate of how much it costs in the West to enforce a rules based system range from 40 to 60 per cent of the economy. In a developing or even emerging country context, that simply is not feasible given the low tax to GDP ratio.

Added to that are the costs associated with patronage to “payoff” vested interests to give way to reforms or to maintain political stability and security (think of business groups, rebels and the military), and you have a situation where the government’s ability to maneuver is significantly diminished.

When the whole purpose of running for political office is to capture the “off-budget” items such as franchises, licenses and monopolies the congress issues or creates, or to protect business interests by controlling appointments into regulatory agencies or by influencing key policies through legislation crafted in congress, it is hard for a government to pursue reform without sufficient “sweeteners”.

In an emerging country like the Philippines where the productive sectors of the economy are expanding and governments are able to raise more money for social safety nets, the challenge is in maintaining the momentum, while seeking a sustainable path to development (given the environmental and social costs associated with development).

More importantly, escaping the “poverty trap” of low or underemployment, intergenerational poverty in an atmosphere of expanding opportunity for some may lead to a “middle income” trap where development takes place within a narrow segment of the economy and fails to “trickle down” to the base of the social pyramid. It is within this context that PNoy finds himself with severely diminished political capital, in the last two years of his presidency.

Foreign chambers will challenge him to lift restrictions to expand investment opportunities in the economy, encourage greater competition and improve infrastructure. The marginalized sectors of society will press him to complete social reforms and expand the system of safety nets.

SONAw what?

PNoy will have to pick his battles from now on. Will he continue to pursue his ambitious good governance agenda, or will he be content with achieving “good enough” governance, the definition of which is to eliminate the worst forms of corruption (i.e. the most extractive) that do not facilitate the expansion of productive sectors and lock people into a path of dependency while maintaining the integrity of economic policy making and governance?

Coherent economic policy does not necessarily equate to liberalization. The power sector is a good example. For a long time we were told that the key to lower energy bills was to “leave it to the market”. This was accomplished through the EPIRA. Now we are seeing that this regulatory framework will not prevent a power shortage and higher energy bills. Calls for emergency powers to allow government intervention to correct a ‘market failure’ are getting louder.

This problem is not just confined to the power sector. In transportation, education, telecommunications, and internet policy, the independence of regulatory bodies and their capacity in formulating policy is hampered either by an incestuous relationship with the very industries they are meant to regulate or corruption.

Deregulation may simply lead to a glut of operators (as in the case with buses in the metro) or having global monopolistic capital capturing regulation as opposed to local monopolists, leading to the same market failures. What is required is a significant improvement in the integrity and capacity of regulatory bodies overseeing strategic sectors of the economy to help expand economic activity.

Success won’t be measured by how liberalized the sectors are but by how efficiently they operate, how low the prices they charge, how available and reliable are the services they offer. To monitor and track all that and wield the carrot and stick effectively to produce desired outcomes requires strong, well-resourced government agencies.

You might have guessed by now that the priorities of a “good enough” governance agenda are very different and more direct to the point than the good governance agenda, per se.

The next item in the agenda would have to be increasing the tax collection effort. Despite his claims that the sin tax indexation reforms did not constitute a new tax, the net effect is that it imposed a higher tax on tobacco and alcohol producers. The template for achieving this reform is just as we outlined above. Affected farmers were compensated with the revenues generated by the tax. The improvements in tax collection were earmarked to improve social safety nets through health expenditure.

This is a template the administration can use to expand the tax base. Forming a social contract requires sacrifice from some taxpayers, in exchange for greater investments in social and human capital. That lies at the core. One proposal would be to have a one percent property tax that would be invested in public and social housing to eliminate the problem of informal settlers.

A minerals and resource rent tax imposed in exchange for liberalizing the mining sector, with proceeds invested in a future fund to provide loans and scholarships to tertiary students would be another example. Whether this administration likes it or not, tax policy is an important lever for achieving its social contract. But to legislate and enforce a minerals and resource rent tax requires a beefing up of the economic bureaucracy. Again, “good enough” governance will get you there.

Ticking clock

As the PNoy administration tries to beat the clock in the remaining year and ten months that it has in office, priorities matter. Will it continue to pursue its good governance agenda, or will it focus on “good enough” governance? As shown here, the priorities are very different based on which agenda he uses. If he wants to pursue inclusive growth and development and fulfill his social contract with the Filipino people, he needs to follow “good enough” governance by improving the capacity of economic agencies within the bureaucracy.

This will make the strategic sectors of our economy perform more effectively and efficiently. It will allow him to generate additional resources, beyond just what the present tax code affords him, even with an intensive collection drive. He will need to look at generating additional sources of revenue by following the sin tax indexation template his government has developed.

Two years may not be enough to complete the good governance agenda, but it is sufficient to achieve “good enough” governance, which is more achievable and will be more direct in following the elusive quest for inclusive development. If he chooses the latter, he will be able to step down in 2016 having a more lasting legacy.

Of white knights and dark horses

Its timing could not have been more poignant. Exactly two years or 730 days before the next president of the Philippines assumes office (and the current one steps down), the Supreme Court decided to hand down its verdict on the (il)legitimacy of the Disbursement Acceleration Program (DAP).

The intent behind DAP was noble enough–to be transparent so that the public could scrutinize what legislators did with their pork barrel allocations. But just as with the ill-fated PDAF (Priority Development Assistance Fund) which was struck down by the high court for being unconstitutional, giving such spending visibility and formality allowed members of the community to challenge it in court. It also forced the administration to justify a practice that had been so pervasive that its illegitimacy now taints nearly every member of Congress that has dipped its fingers in it.

For a president who touted his expertise in scrutinizing the budget as his single greatest achievement in the senate that qualified him to run for the top post, the judgement of the Supreme Court is truly an indictment on his capacity to govern righteously.

So now, with its reputation sullied and its moral ascendancy in tatters, the Aquino administration will have to re-invent its narrative as the president reports to Congress during the State of the Nation Address later this month. For many nothing he does or says will matter. As one cab driver told me when the question of the pork barrel arose, magnanakaw naman sila lahat. Pati si PNoy nagnakaw din ‘yan (They’re all thieves. Even President Aquino himself has stolen).

This could be the political fallout of this entire saga. Faced with a cynical public, the challenge the president now faces is to craft an agenda for the remainder of his term, as he approaches lame duck status next year when the political season comes into full swing. This agenda will have to be inspiring enough to cut through the political noise as hecklers and protesters crowd the airwaves with their own agenda of discrediting or bringing him down.

In truth, nothing much has changed. During the early days of Mrs Arroyo’s presidency, her opponents sought to derail her agenda of building a strong republic (matatag na republica) by questioning her legitimacy and taking advantage of each corruption scandal that arose involving people in her cabinet or first family. Given the circumstances that surrounded her rise to power (the ousting of a popular president through extra-constitutional means), the only way for her to stay the course was with the use of congressional pork barrel to stave off any impeachment complaint.

Now under the current president, pork barreling as practiced before is no longer an option. What assures his survival is the threat of mutually assured destruction. Since both congress and the executive have been mired in controversy with the PDAF and DAP anomalies, both branches feel vulnerable. A third option is also open: the use of BUB or bottom up budgeting, another discretionary fund, under the control of Secretary Mar Roxas of the Department of the Interior and Local Government, to get provincial governors and city mayors on its side.

At the SONA, expect the president to present his legacy in a good light, basking in the glow of the recently concluded World Economic Forum on East Asia where his reform credentials were touted as the source of the country’s newly established reputation as the darling of the international investor community.

To be sure, the contrast between the president’s international and local reputation could not be starker. Abroad, he has been hailed as a leader who has brought political stability and credibility through good governance as evidenced by the signing of a permanent peace accord with Muslim secessionists, but to people on the ground, his political rhetoric concerning the Straight Path (Daang Matuwid) is just that, mere rhetoric.

By their own admission, the holy grail of inclusive growth and development has eluded this administration so far. Any claim that their mantra of good governance means good economics (kung walang kurap, walang mahirap) still rings hollow for majority of Filipinos who have yet to feel the effects of rapid economic growth trickle down to them.

Here again nothing much has changed. There is a long laundry list of unfinished business. From the distribution of land titles under the Comprehensive Agrarian Reform Program, which the president promised would be completed before he steps down, to the closing of the school building backlog, to the lifting of infrastructure spending to 5% of GDP to increase the flow of private investments, to the financing of tertiary education to provide skills that investors seek, to the achievement of universal health care.

Any significant progress on these fronts would help blunt the attacks directed at him and give people cause to keep the faith. The fact of the matter is the Filipino people are a forgiving lot. If you show them that you are working for their benefit, they may forget the ugly proceedings that have occurred in the realm of politics.

This leads me to the question of succession in 2016. The president in his public addresses has been ramping up rhetoric surrounding the choice facing us, as one of continuing down the straight and narrow path that he has followed or going back to how things were prior to his presidency. The problem now is that the president’s straight and narrow path looks a lot like the old path following revelations of corruption in the use of the DAP and PDAF which he approved.

For me the problem really lies in our quest for a white knight to rescue us from our present troubles. The reform constituency in 2016 won’t opt for the president’s nominee apparent, Secretary Mar Roxas because they already see him and the ruling Liberal Party as being part of the problem. They will seek a new face. Someone like Senator Grace Poe. The 40%+ that elected PNoy in 2010 (whom we might consider to be the reform constituency) will be split between them.

This will allow Vice President Binay, the dark horse of 201o to have a straight path (no pun intended) to the presidency. To many Filipinos, the election of Binay won’t be such a bad thing. This is because most Filipinos are pragmatic. They are not enamored by slogans of hope and change. Like the cab driver I rode with, they recognize that no one who reaches high political office does so without compromising their integrity.

The goal for them is not necessarily doing the right things or doing things right, so much as simply getting things done so that their lives improve. That is all that matters to them in the final analysis. Between a leader who promises reform, but is unable to deliver results that matter to their lives, and one who has demonstrated that capacity in a smaller scale, who do you think voters will select?

In a way, Noynoy the white knight is paving the way for Binay the dark horse because people have come to see that it takes more than pure idealism to produce real results on the ground. It takes more than just a smattering of patronage here and there to address social ills. What it takes is systemic reforms to deal with structural problems, not just cosmetic changes or token arrests. A leader who understands this and is able to do more than reshuffle deck chairs on the Titanic will come up a winner in 2016.

Returning to face the challenge

To the regular followers and commentators at Propinoy,

I wish to take leave from my regular column here as I have recently been appointed to manage a project funded by an international aid organisation in the Philippines. This will prevent me from commenting on current affairs in the Philippines, at least for the duration of my engagement.

The last three and a half years that I have spent blogging in this space have truly helped me hone my thinking regarding the development challenges facing the country. I am glad to now have the opportunity to put some of the things that I have been espousing into practice (fingers crossed!).

Although this is but a temporary hiatus, I know that I shall miss the interaction, the feedback and the lively, thoughtful discussions I have come to expect from you over the years. I know that my fellow bloggers here at Propinoy are more than capable of keeping the flame alive, so that when I return, we can continue this conversation.

Yours truly,

Doy Santos aka “The Cusp”

What the Philippines Can Learn from Rwanda

How has Rwanda managed to overtake many developing nations in the global race for competitiveness and transparency?

Landlocked, under-endowed, war-ravaged, Rwanda a nation of 10.5 million people has faced a number of challenges, not the least of which was the ethnic strife that led to genocide twenty years ago. And yet it in spite of all this, it has managed to regain stability and posted sustained economic growth averaging 7.4 per cent per annum that has led to improved social well-being over the past decade.

As an indication of its progress, Rwanda has successfully undertaken significant reforms in its regulatory environment. Just consider the following:

So how has a country which suffered many years of war and as much corruption as any other impoverished nation in the past, managed to turn things around?

Well the short answer is they did this through an accommodative political settlement and the help of both conventional and unorthodox institutions and economic strategies.

A troubled past

Rwanda has had a long history of ethnic violence between the two main rival tribes.  From pre-colonial times up to 1959, the pastoralist Tutsis were the ascendant political class over the agriculturalist Hutus. Ethnic differences were exaggerated under colonial rule. In the lead up to independence in 1962, Belgian colonists transferred their support to Hutu elites. This led to mass killings of Tutsis many of whom fled the country.

Two Hutu regimes ruled the country from 1961-94. Having a single-party dominate politics for most of this period did not prevent the nation from succumbing to decentralised rent-seeking and clientelist behaviour. A group known as Akazu was at the apex of this system. It was related to but not controlled by the administration.

Tutsis sought to regain control of the country through an invading Rwanda Patriotic Army. This culminated in the genocide of 1994 by retreating Hutus. After consolidating their hold on the country, the Rwanda Patriotic Front (RPF) established a government of national unity incorporating moderate Hutus, one of whom led the country as its president.

A reformist regime

Although a certain amount of political repression in the guise of preventing a return of “ethnic ideology” has occurred, the coalition governments comprised of all legal parties in parliament being proportionately represented in cabinet (the ruling RPF holds no more than fifty per cent of the portfolios) has succeeded in keeping the nation stable. This inclusiveness along with its program of restorative justice known as gacaca has fostered reconciliation and allowed the country to experience improvements in social and human development not previously seen.

The intrusive intervention of government in everyday life at times borders on social engineering as the government has sought to follow the Singaporean model in both economic and social policy implementation. President Paul Kagame (elected in 2003 and then again in 2010) has been labelled the global elite’s favourite strongman for improvements to public service delivery, particularly in health and education.

Departmental line agencies have been managed through an institution of performance contracts known as imihigo which Tim Kelsall describes as “modern performance agreements supported by a significant component of moral pressure and neo-traditional gloss.” This combination of formal scientific management and homegrown practices has permeated down to the grassroots by roping in local officials and civil servants.

On the economic front, Rwanda has applied a hybrid approach to investment promotion. On the one hand, it has adopted policies and institutional arrangements considered best practice by the World Bank’s Doing Business surveys. Responsibility for managing this has been assigned to the Rwanda Development Board (RDB). But this works in parallel with a more activist approach in industrial policy with the RPF’s holding company, Tri-Star Investments getting involved in joint ventures and start-up companies.

The holding company has initiated many successful ventures with demonstration effects for the rest of the economy. Telecoms is one example. When Tri-Star sold part of its stake in Rwandatel in 2007, it got five to ten times its initial investment in the company.

Because profits from Tri-Star that are not ploughed back into its businesses revert to RPF, the party is financially independent. It uses this to fund its political campaigns without having to resort to political donors. Kelsall explains what this does:

The RPF’s financial solvency obviates the need for party officials to engage in election-related corruption, which in turn allows the party to take a very tough line on corruption among its leading supporters and in the bureaucracy.

Apart from Tri-Star the government has also orchestrated the formation of other funds, the Horizon Group belonging to the army, which undertakes socio-economic projects to produce productive enterprises, and the Rwanda Investment Group, a consortium led by domestic and diasporic elite.

The purpose of the second group is to raise capital other than through foreign borrowings to invest in high impact projects of strategic national importance. Without such an interventionist approach, much of the agricultural and industrial transformations currently underway in different sectors of the economy simply would not be happening.

The case of Rwanda demonstrates many similar traits to that of the Northeast Asian developmental states. The RPF led government faced existential threats from the opposition in exile and from a potentially hostile ethnic majority at home just as the South Korean and Taiwanese states did from North Korea and from mainland China. 

These threats have kept the ruling RPF focused on improving social and economic well-being for its citizens to maintain its legitimacy and hold on power. The regime has exercised a capacity for long-range vision and forward planning contained in its Vision 2020 roadmap, free from the influence of rent-seeking, private interests. It has ruthlessly pursued its policies at times through heavy-handed regulations and enforcement of rules.

The low crime, low corruption, low red-tape environment this has fostered was not enough. The RPF has used its clout to address market failures and encourage the adoption of productivity enhancing new technology. Through its holding company and other private-led investment groups that it has brought into being, jobs have been found for talented managers and skilled workers that might have otherwise gone overseas.

The Rwandan experience demonstrates the capacity of poor nations to bring about a system of governance that is relatively competent and free from corruption within a short span of time using home-grown institutions, resources and talent. The extremely harsh and disadvantageous position it faced did not become a hindrance, but rather provided greater incentive for it to go down the road it has followed. Surely, any emerging economy seeking to do the same should take heed the lessons from Rwanda.

Lessons for the Philippines?

The Philippines may have already attained middle income country status, a milestone that Rwanda is still aiming to achieve by 2020, but there are certain elements in Rwanda’s development experience that it can learn from.

  • Financially autonomous political parties:

We have seen how  gaining financial solvency allowed the RPF to govern without fear or favour. This enabled it to take a long-term view in planning and executing its economic development strategy. It enabled it to rule with moral ascendancy and punish erring, corrupt officials, putting an end to the patrimonial, rent-seeking behaviour of its bureaucratic and business elite.

  • Inclusive, participatory governance:

We have already seen how the RPF has shared power with other political parties. The proportion of cabinet appointments follows the same proportion of parties represented in the parliament. In the 2013 elections, an unprecedented 64 per cent of seats were won by women. This is the highest level of female participation in political office anywhere in the world. With this level of representation, laws that uphold women’s rights and promote women’s health and well-being are being enacted.

  • Home-grown solutions:

Although a certain amount of repression of the press and political opposition has taken place, in the guise of preventing ethnic tensions from flaring up once again, such suppression it can be argued would have taken place anyway, given conditions prevailing in Rwanda. Rather than relying on foreign models of governance and economic development, Rwanda has charted its own path. It uses institutions like gacaca and imihigo to bring about restorative justice and better governance.

  • Robust government role:

In promoting economic development, Rwanda didn’t follow the Washington Consensus that simply limits the role of government to creating a level playing field. It followed the example of East Asia, which meant addressing structural issues in its economy through interventionist industrial policy aimed at catalyzing investment in productive sectors in agriculture, industry and services to raise the standard of living of those residing at the base of the socio-economic pyramid. Ironically this has emboldened the private sector to take risks as well, to invest in the future of the country.

  • Political succession.

Many commentators are wondering whether President Kagame intends to step down at the end of his second term in 2017. A third term is constitutionally prohibited. As early as 2012, the ruling party held a conference to tackle the issue of political succession at Kagame’s request. At this early stage, the RPF has begun to look for ways to bring about an orderly succession, but one that does not put in jeopardy the advances made already. It is seeking ways to institutionalise mechanisms for bringing this about.

It would not be right to recommend that the same set of policies be adopted in the Philippines. The message here is that countries need to chart their own developmental path based on the conditions they face. The universal prescriptions of the Washington Consensus are becoming less influential as the balance of economic power shifts to the East. While that may be true, certain key principles can be gleaned from the success of other countries.

Considering the way the RPF developed its Vision 2020, opened up participation of women, included its political opponents in a cabinet that advises the president, and managed the bureaucracy through formal and informal contracts, what changes could the ruling Liberal Party make that would improve the way it governs under President Aquino? More importantly, how could it ensure that the positive changes it makes continue beyond 2016 when he steps down?

Actions, not words

On 30 December 2013 President Noynoy Aquino declared: “we are destroying the last bastions of corruption.” And in other news, Malacañang Palace clears the re-alignment of Senator Jinggoy Estrada’s PDAF to his father’s fiefdom, making LGUs the new NGOs through which state largesse is dispensed or diverted back to the political sponsor’s pockets.

It is not words we need from you, Mr. President, it is action. Actions speak louder than words. It is perfectly obvious that a conflict of interest exists here when the sponsor and recipient of spending measures are related. Any ordinary person can see it, why can’t you and your officials? Unless of course you are deliberately turning a blind eye.

This is how the PDAF and DAP scams began, with the executive’s tacit approval. We know what will happen here. The vast majority of congressmen have a father, son, wife, sister or some other blood relative occupying a local government post. With this precedent set, the floodgates will once again be open to abuse as political dynasties milk the system for all it’s worth.

Is this how you intend to spend the “last two minutes” of your administration? Waiting for another scandal to blow up in your face? “There is definitely something wrong in the state of Denmark,” Mr. President. Stop deluding us that you are conquering corruption, and do something about this.

By the way, I am not a critic. I have been accused of licking your ass by trolls whenever I say something positive about your administration. I am speaking here as your boss. If you fail to act, then you will have earned the tag of #noynoying. So for the sake of preserving your legacy, intervene at this crucial moment, before it comes back to bite you as DAP did.

Image credit: Eaglenews.ph

The President’s speech

Image credit: Eaglenews.ph
Image credit: Eaglenews.ph

In his new year’s address, President Aquino spoke of the urgency to complete his administration’s good governance agenda alluding to the remainder of his term as the “last two minutes”.

Several challenges faced this year were mentioned including the PDAF scandal, severe weather events and the continuing task of providing employment for our people. Achievements to date were the prosecution of cases against corrupt officials implicated in the PDAF scam, signing of the annex to the framework agreement to end conflict in the South, resilient growth in the face of a regional slowdown, and the granting of investment grade status to the Philippines.

The president mentioned the ongoing tasks needing completion before the end of his term, which are eradicating corruption, solving the skills mismatch in labour markets and providing enough employment opportunities, and bringing about a final peace settlement in Mindanao.

Unfortunately, in seeking to play up the positive achievements under his administration, the president may have undermined his own credibility. The president intoned, “because of good governance, we are destroying the last bastions of corruption, and at the same time, creating more opportunities for our countrymen.”

The last bastions of corruption? As evidence of this, the president cited our improvement in Transparency International’s (TI) Corruption Perception Index moving 29 places up from 134th to 105th place out of 177 countries in the ranking. Actually, TI’s 2013 report shows us at equal 94th place along with countries like Djibouti, India, Suriname and Ecuador (see below).

Of course one can argue that the methodology used by TI necessarily makes it vulnerable to criticism based as it is on perceptions of the country, which can be influenced by the “halo effect”. The real proof of the pudding is  in the actual experience of investors when they try to do business in the country. And here a better yardstick comes from the World Bank’s Worldwide Governance Indicators.

Although the World Bank’s findings show the country’s Control of Corruption score in 2012 recovered from its recent lows, it was still at 33 with 100 being the highest possible. This puts us slightly below what we attained in 2005. I doubt that anyone would regard that as a banner year for beating corruption. It doesn’t suggest that we have limited corruption past the historical mean if you look back at the WB’s time series. We are way below our highest score of 55 attained back in 1998.

WB CoC

As far as providing jobs, the president said, “Through the cooperation of DOLE, TESDA, DepEd, CHED, and the private sector, we are finding solutions to the job-skills mismatch. Therefore, it is not surprising that the unemployment rate decreased this year.” This statement can be questioned. While the unemployment rate recorded for October 2013 was 6.5 per cent, lower than the 6.8 per cent in the same month of 2012, the average for 2013 was 7.1 per cent compared to 7.0 per cent in 2012. Also, it is worth noting that the October estimates excluded the province of Leyte.

It is standard practice in dealing with employment figures to use full year averages to smoothen out the volatility of results. While average total employment rose 0.8 per cent to 37.9 million in 2013 up from 37.6 million in 2012, the number of unemployed people also rose by 2.5 per cent to 2.9 million from 2.8 million during this period. This does not suggest that employment conditions improved much in the last year.

It is likewise hard to know what to make of the administrative statistics the president cites with respect to TESDA’s performance. He compares a study performed by the Department of Budget and Management showing that only 28.5 per cent of graduates between 2006 and 2008 found employment after training to a study performed by TESDA in 2012 that showed that this had increased to 62.4 per cent.

We are not told whether the methodologies used by the two agencies in deriving these results were consistent with each other. Was the length of time the same for both studies (the former was for three years, what about the latter)? How long since graduating were the former pupils surveyed in each study? How were respondents sampled? The seemingly vague language used in the president’s statement does not really help clarify the issue.

The seeming lack of rigour in subjecting the president’s statements to analytical scrutiny opens up his message to criticism. If the premise of his argument appears faulty, then the conclusions and policy direction he derives from them could be discredited as well.

For me, the cherry picking of statistics that favours his arguments simply undermines the very thesis that good governance reforms are in fact working to improve things and are close to their culmination. In our pursuit of the straight path, there ought to be no hint of deception or bias in our analysis of the situation. To be fair, I don’t think it is their intention to deceive us. Perhaps it is a case of the spin meisters not seeking help from technical analysts in proofreading the speech.

Finally, what was sorely lacking in the president’s narrative was a cogent strategy and clear policy direction for the remainder of his term. The president again seemed to resort to rhetorical flourishes, rather than spelling out his roadmap. He has left it to commentators to fill in the blanks for him. This is not what we would expect from a president at this stage of his term. Worryingly, the president’s speech has left us with more questions than answers.

The year of the fund

A fund here, a fund there; funds were everywhere in the news, this year.

Whether it was the Supreme Court’s final ruling on the disposition of the coco levy funds invested in United Coconut Planters Bank or the investigations into the abuse of Congress’ Priority Development Assistance Fund, the misappropriation of the Malampaya Fund or the president’s social fund, funds were all over the news this year.

There is one common thread that runs through all of them: funds set aside for some kind of social or economic development need were used for personal or political motives. It didn’t matter whether they were taxpayer-sourced as in the case of PDAF or revenues from government activity such as the lottery, gambling or mining operations. The fact remains that special purpose funds can be turned into slush funds quite readily.

Perhaps that is the reason Sec Cesar Purisima stated in May this year that the idea of a Sovereign Wealth Fund created out of our foreign reserves proposed by the Bangko Sentral had lost traction and would not be taken up by this administration. It is as if the president intuitively knows that such a fund might be raided by future governments.

Unfortunately, he is busy enough dealing with the mess created by the funds that are already in place, that the setting up of a new one might seem a bit too ambitious. And there has a palpable public backlash against the use of such special purpose funds in the wake of the pork barrel scams, anyway, that such a scheme might face stiff opposition.

At any rate, since these funds have dominated the news this year, then addressing them would probably be the order of the day in the coming year. Let us not forget that in the wake of typhoon Haiyan, a Php 100 billion reconstruction fund was created to speed up the recovery of the most affected regions in the central Philippines, or that following the passage of the sin taxes act, Php 63.6 billion in revenues were generated as of September this year, which should boost the trust fund of the Philippine Health Insurance Corporation.

So let me offer some unsolicited advice (as I often do in this space) on how the government ought to manage these funds.

As a general principle, if we were to retain them (and not co-mingle them with the general government revenue pot as some have suggested), then we have to move away from putting such funds under the sole discretion of an individual and allow for better governance through a deliberating body to consult and provide advice on how these funds should be spent.

With respect to PDAF, this matter has already been settled by the Supreme Court. All forms of pork cannot be allotted to members of congress to dispose of after the general appropriations act has been passed. They would have to identify the need during budget deliberations, and leave it to line agencies to address their requirements through the usual open and competitive bidding process if their proposed budget items are adopted.

Secondly, with respect to the Malampaya fund, a professional board comprised of energy and development experts must be set up to advise the Department of Energy and the president on how to apportion funds available for investment. This board could undertake public consultation through stakeholder engagement.

The proposal of several legislators to use it as a stabilisation fund against power increases could be studied as well. A comprehensive plan publicly available and developed based on the best alternatives available should be put together by this board and recommended to the president. The president could then respond to these recommendations point by point and release an annual report on the status of the fund and its activity.

Thirdly, with respect to the president’s social and charity funds resulting from the revenues from the lottery and gambling corporations of the government, the National Anti-Poverty Commission should be given the role of screening the proposed uses of the funds and advising the president on whether to adopt them. This does not limit the president’s discretion to dispose of the funds as he pleases, but at least he would do so in a considered way, as part of an anti-poverty strategy, and creating an additional layer through the commission would provide a process through which his decisions could be better informed.

Finally, when it comes to the coco levy fund recovered from UCPB and San Miguel, the same process would apply. Only this time, members of the claimant community consisting of copra or coconut farmers and beneficiaries must be represented in whatever body is set up to oversee the fund. This would allow their voices to be heard in the governance of the board that manages their money.

In all these cases, the same basic principle applies, leaving decisions to the sole discretion of an individual, be that the president or local representative sets up opportunities for corruption and cronyism. Allowing a board comprised of major stakeholders to be in charge of filtering ideas, critically assessing options and making recommendations to the executive by releasing a periodic report, and making the government account in a transparent manner the disposition of the funds through an annual statement creates greater probity and integrity into the system.

Perhaps if we could begin to demonstrate better governance in managing these special purpose funds over the next two years, then by the time the president steps down, he would leave behind a legacy of instituting substantial reforms in the way we manage and account for such public funds. These reforms would not only ensure that the money is apportioned based on its intended use, but that such appropriations are part of an overall strategy and plan and not just made willy-nilly based on personal preference or transactional methods.

Roxas-Romualdez redux

RR redux

Just a final thought on the affair involving the secretary of the interior and the mayor of Tacloban in the wake of typhoon Yolanda’s devastation.

A blow by blow account has already been provided by Cocoy of their conversation as exposed by Cito Beltran. The whole “you are a Romualdez and he (the President) is an Aquino” and didn’t want to be misconstrued as running roughshod over the town in his desire to bring relief to the local populace, in my view, is just a side-bar to the incident. The real controversy is whether the actions of Roxas in seeking to take the lead in the relief efforts of the town were necessary.

Dean Tony La Viña of the Ateneo School of Government argues in his regular column that it was “entirely appropriate” and within his rights and prerogatives for the President, given the paralysis experienced by the local city of Tacloban in Leyte, to take the lead in coordinating the disaster relief efforts. But he also contends that

if that formality required the local executive to give up his powers, I believe that such formality, whether in the form of a letter or ordinance is void ab intio and illegal as it violates the Constitution, the DRRM [National Disaster Risk and Reduction Management] law, and the Local Government Code.

The principle of the LGU as first responder in times of natural disasters was often repeated during the relief operations. It is enshrined in law. The following passage comes from Section 15 of the DRRM law cited by La Viña above

The NDRRMC [National Disaster Risk and Reducation Management Council] and intermediary LDRRMCs [Local Disaster Risk and Reduction Management Council] shall always act as support to LGUs which have the primary responsibilIty as first disaster responders.

Under the Local Government Code, a municipality such as Tacloban is responsible for such things as solid waste disposal and environmental management services, including general hygiene and sanitation, municipal buildings, school buildings, clinics, health centres, sports facilities, water supply systems, sewerage, public cemetery, police and fire stations and the municipal jail.

As lead coordinator for disaster response in the first instance, LGUs are meant to bring these assets to bear in dealing with the situation. What happens then when its resources are incapacitated or swept away as was the case in Tacloban? Well, common sense dictates that either the regional disaster council acting as the LDRRMC (since the disaster affected areas comprised several provinces) or the NDRRC (chaired by the secretary of national defense) should step in to help.

We know based on Prof Solita Monsod’s chronology of events that that is exactly what happened. The national government did not hold back or play petty politics in Tacloban contrary to the claims made by its mayor. Their responders were on the ground from day one. As Monsod put it, 

It doesn’t look like Tacloban and the Romualdezes were left out in the cold. Politics does not appear to have been a factor here. Where did it come in? Not in the walk, only in the talk. Roxas wanted to protect his principal [President Aquino], and Romualdez wanted to protect himself (he was afraid that if he signed anything, it could be misinterpreted as a resignation).

Going back to La Viña’s point that such legal cover was not needed and in fact illegal if it required the mayor to “give up his powers” I would argue that turning over his lead role in disaster response to the national government would not be an abdication or resignation on his part. It is clear that the city of Tacloban did attempt to make good on its lead role as first responder, but it had very limited resources after the storm weakened its capability.

Allowing the national government to takeover this function in the second instance, after its efforts fell short, was both appropriate and ideal so that a single chain of command and control could be established.The last thing you would want in such a crisis is for meagre resources to be squandered simply because the effort was being directed by competing centres of authority.

But even if it could be misconstrued as a resignation, so what then? Simply work around the language and construction of the letter or ordinance to phrase it in a way that makes it clear that it isn’t. The national government was only seeking a time-limited mandate to direct local resources so that it could complement its own in addressing the crisis from a united front.

What is pitiful is the mayor making a spectacle of himself by insisting that he maintain his lead coordinating role when it was clear that he lacked the required assets to deal with the magnitude of the problem and then attempting to pin the blame for the inadequacy of the response on the national government.

La Viña argues that this exposed some holes in our DRRM framework. I disagree. I feel that all it exposes is the inability of some local politicians to set aside narrow-minded interests for the sake of the public’s safety and well-being.

Local autonomy means that LGUs have the “freedom to fail” by refusing help from the national government (when it doesn’t suit their needs or requirements). That is why the DRRM law distributes roles in times of crisis as it does. If we want to do away with this balance we would have to remove the LGUs’ ability to refuse help. In other words, we would have to “dummy proof” the laws concerned. But that is just it, we should not have to do so.

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